The fourth quarter rounded off what was a truly eventful 2025 with positive returns. Indeed, stock market returns for the year as a whole were extremely positive, despite the obvious headwinds caused by geopolitical events across the world. This does serve as a reminder not to allow our investment approach to be driven solely by short term, news-driven events. If we consider that during the year we had martial law declared in Korea, the very real decline of German heavy industry, snap elections called in both France and Japan, a UK economy seeming mired in relative decline, oh and the not so insignificant implications of President Trump’s Liberation Day’ tariff announcements along the way, this illustrates why an approach of staying invested, whilst diversifying investments globally, pays off over the longer term.
To add weight to this argument, in 2025, Korea, Europe, Japan and the UK were among the top-performing markets despite the aforementioned events. It was also the year when the US market lagged many others, despite delivering positive returns along the way, as the weakness of the dollar, a lasting effect of Liberation Day, reduced these returns for overseas investors.
Certain equity markets were undoubtedly driven by the AI spending boom, and Alphabet’s (Google’s) share price return of over 60% helps to evidence this, as well as the performance of markets such as Taiwan and Korea, which produce much of the equipment required for AI infrastructure. AI spending also contributed significantly to US GDP growth.
However, other markets were powered by their attractive relative valuations, such as the UK, Europe and Japan, with the latter two markets’ attraction being aided by governmental plans to significantly increase domestic spending. These diverse drivers of return can only be regarded as positive, since they reduce our reliance on a single theme.
We also saw strong positive returns from fixed interest markets, with bond prices rising, as we saw interest rates declining in most major markets. Again, this was despite the apparent headwinds of increased levels of government borrowing and uncertainty over inflation. Although it was bonds issued by corporate borrowers that led the returns, again demonstrating the importance of diversifying investments across different markets in this asset class, too.
So, all in all, it was a good quarter and has been a good year for investors. Whilst much of the news around markets revolved around AI spending and talks of a ‘bubble’, our portfolios were not reliant on that theme to generate returns in 2025. Whilst there may be uncertainty about the returns that may be generated from the technology, it is certainly something companies continue to invest in, even if it’s simply based on the fear of missing out. Many stocks relating to the theme are certainly expensive, by historical standards, but many companies, such as Nvidia, are currently generating earnings growth to support these valuations.
Meanwhile, many stocks in the US are not so richly priced and with a backdrop of lower taxation and possibly lower interest rates, there is no reason currently to suggest a recession, which bodes well for sectors outside of tech. Indeed, healthcare stocks were the strongest performers in the last quarter of 2025.
We also saw themes, specific to certain geographies, that are providing support for markets outside the US, and we expect the global economy to muddle through while valuations are not excessively high here either. Fixed interest stocks, whilst sensitive to government spending levels, should respond well to any further interest cuts, although we must be aware of the risks to longer dated securities.
All of which suggests, provided we maintain our discipline of diversification across all asset classes, we should weather any short-term volatility from further geopolitical shocks, which, although it feels almost inevitable, is not assured.
Rockhold Asset Management December 2025